Vietnam’s fuel imports may drop as the effects of a tax cut on sales of gasoline and diesel fuel from the country’s Dung Quat oil refinery start to be felt as earlier term contracts expire.

Vietnam’s government allowed Dung Quat’s operator Binh Son Refining and Oil Co, starting on Jan. 1, to lower its tariff on domestic gasoline sales to 10 percent from 20 percent while the tax on other oil products including diesel was lifted, Binh Son Chief Executive Officer Tran Ngoc Nguyen said on Monday (24/07).

The reduction allowed Binh Son to match the current 10 percent tax on gasoline imports from South Korea established under a free-trade agreement (FTA) and the tax-free status for diesel sales from countries in the Association of Southeast Asian countries (Asean) under a different FTA.

The lower taxes are expected to reduce imports of gasoline and diesel into Vietnam, denting overall profit margins for the oil products, four fuel traders told Reuters on Monday.

While the tax reduction was effective from January, local importers had already agreed to long-term fuel contracts with Binh Son in December, meaning they missed the lower taxes, the four traders said.

The tariff reductions were announced in September but would only apply to contracts signed in 2017, said Nguyen.

Dung Quat’s full-year production this year is expected to reach 6.1 million tonnes per year, equivalent to about 122,000 barrels per day (bpd), nearly 20 percent higher than its initial target as a result of the lower taxes, said Nguyen.

The refinery, currently Vietnam’s only operating refinery, has a total capacity of 6.5 million tonnes per year.

From 2024, the gasoline sales tax will be lifted in line with other free-trade agreements signed by Vietnam, said Nguyen.